Commercial Landlords: The Good, The Bad, and The Ugly

As an exclusively tenant-focused commercial real estate broker, I get asked almost daily what makes a landlord a good landlord, and whether it really matters to a tenant if they lease space from a good landlord versus to a bad one.

There are many qualities that differentiate the good from the bad, but there is really only one quality that matters. Respect. Respect for their building and how they take care of it. Respect for their staff, as that staff is on the front line working with the tenants day in and day out. Respect for the brokers that support them and help fill their buildings. And, most importantly, respect for the one thing that makes this whole business work: the tenant – the ultimate customer in this whole equation.

Yes, a new fitness center, bocce ball court, or outdoor terrace is a nice-to-have amenity. But a nice terrace won’t make up for a landlord that back trades deals, overcharges tenants with astronomical operating expense pass-throughs (i.e. CAM charges), and treats the tenants like they are lucky to be there – and not the other way around.

In San Diego, we are fortunate to have many great landlords. The Irvine Company, Kilroy, and Hines are some of the best in the country. We also have many very good landlords. These are typically made up of pension funds, banks, etc. looking to diversify their portfolios and sink funds somewhere to make a decent return.

Unfortunately, we also have a couple of very bad landlords. One of those landlords doesn’t believe in capital improvements to its buildings and, as such, its two buildings are literally falling apart. Broken elevators, faulty air conditioning, floods and leaks, fires, etc. The other landlord has no issues with spending money – in fact, it’s poured millions of dollars into its lobbies (passing through all the costs to its tenants in the form of CAM charges) – but does have an issue with the golden rule: treating its tenants, and everyone else involved in the process, with respect and dignity.

So how do tenants know which landlords to lease from – and which ones to avoid?

1. Ask a broker.

The best way to find out the good, bad and ugly in the landlord world is to ask a broker. It’s important to ask a tenant-only broker, and not a broker at a full-service firm (think CBRE, Cushman & Wakefield, Jones Lang LaSalle, etc.), in order to get truly objective advice. Full-service firms make their money representing landlords and, as such, they’re most likely to recommend the landlords that they represent or are hoping to represent in the future! More importantly, many of these full-service firms are either owned by large landlords, or they themselves are asset managers of buildings. Their advice is riddled with conflict as a result.

2. Look into the landlord’s track record.

Information is readily available about landlords’ prior history in buying and holding buildings. If you notice that the landlord has owned a building for 20+ years, then it is probably in it for the long haul. If a landlord has had success in the past flipping buildings it’s reasonable to assume it’ll put in some capital to your building and try to make a quick buck off of it in the short-term. It’s also important to dig into how much debt is on the building, and when that debt is coming due.

3. Ride the elevator.

One of the best indicators of a landlord’s performance is how happy its tenants are. So ride the elevator. Ask the people you meet how they like the building, and how the landlord treats them. The answers can be extremely telling!

It’s important to do your research before signing your lease, and the more you know about your landlord going into it, the better off you will be. Just remember that, as the tenant, you are what makes this whole industry work – and you deserve to be treated that way!

Star Hughes-Gorup is a senior vice president and director at Hughes Marino, an award-winning commercial real estate firm with offices in San Diego, Orange County, Los Angeles, San Francisco, Silicon Valley and Seattle. Star is a key member of Hughes Marino’s San Diego brokerage team, where she specializes in tenant representation and building purchases. Star also makes frequent media appearances to speak on business issues from a millennial perspective, and blogs about life as a woman in a male-dominated industry at starhughesgorup.com. Contact Star at 1-844-NO-CONFLICT, or star@hughesmarino.com.